You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your parking lot business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a parking lot business?
Initial startup costs include the rental or purchase of the lot/garage, purchase or lease of equipment, such as transaction machines, lift gates, and security cameras. Garages are more expensive, and costs are much higher for multilevel garages equipped with elevators.
In smaller cities, it is possible to start with a single small outdoor lot for less than $10,000 in startup capital if you lease the land. An indoor garage can cost many hundreds of thousands of dollars and upwards to millions depending on its size and location.
What are the ongoing expenses for a parking lot business?
Parking lots are relatively low-maintenance businesses. The majority of work that goes into maintaining a parking lot involves repainting lines, replacing signage, and paying for lighting (and possibly heat) if it is a garage.
Typical monthly expenditures for a small outside lot will be around $5,000 per month consisting of:
- Rent or Mortgage payment $2,000 per month ($0.50 per square foot per month).
- Wages for parking lot attendants - $2,240 per month ($10 per hour = 56 hours per week) Double this amount if open at night as well as in the day.
- Employer’s portion of employee taxes $336 per month
- Utilities - $200 per month (lighting)
- Insurance - $100 per month
- Supplies - $100 per month (parking lot receipt tickets)
Who is the target market?
Parking lots are used by customers because of the convenience of parking near something else. The customers are those that drive by the parking lot.
How does a parking lot business make money?
Most parking lots make money by filling up the empty spaces with cars that pay an hourly rate or flat rate for the parking. Parking lots are especially profitable during peak traffic in larger cities. For example, many lots take advantage of the number of drivers in town during sports games and those attending other big events.
For a parking lot company that offers parking lot management services, they are paid a monthly fee that is based on the revenues produced by the parking lots they manage for other owners.
How much can you charge customers?
The price you can charge depends on the demand for parking and the nearby competitive prices. In rural areas, $1 per hour is very common. In major metropolitan areas that are very congested, with extraordinarily high real estate prices, such as New York City, it is possible to charge up to $15 for fifteen minutes ($60 per hour).
How much profit can a parking lot business make?
One small lot with 20 spaces that earns, on average, $10 per space per day will have $200 per day in gross revenues and earn $73,000 in gross revenues per year. If the lot is outdoors and 4,000 square feet at $0.50 per square foot per month rent, the annual rent will be $24,000. Wages paid at minimum wage level for parking lot attendants will be about $20,800 per year, leaving $28,200 in gross profits before taxes from a single, small parking lot.
Large parking lots can have many hundreds of parking spaces, which is a multiplication of these basic profit estimates.
How can you make your business more profitable?
The parking lot business becomes more profitable through economies of scale. Owning more parking lots that use the same back office and support services is the key to growth and increasing profits. In addition to management of parking services, the business can expand to offer other support services to commercial building owners such as energy monitoring, facilities engineering, HVAC, janitorial, maintenance, and landscaping.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your parking lot business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a parking lot. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A parking lot is either located in an empty lot of land or a large parking structure. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a bar.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your parking lot business will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a parking lot business
These businesses are especially dependent upon location. Parking lots and garages located near other lots have stiff competition. One thing that helps attract customers is to have the parking lot attendant wave to the passing cars to encourage them to enter the parking lot.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Giving out discount coupons helps attract new customers. Having a loyalty reward program that offers discounts for regular users is a good way to retain customers.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Parking Lot Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
This business is an attractive investment opportunity for those investors with capital to invest in the leasing and/or acquisition of parking lots, who are looking for a long-term, fairly stable rate of return on the investment. The alternative is setting up a service company to manage the operation of the parking lot/services for other owners.
What happens during a typical day at a parking lot business?
Once setup, this business runs almost automatically. The business owner’s concerns are hiring staff and making sure the parking lot attendants show up on time to do their job. Another duty of the owner is to manage the cash deposits, get change from the bank, and create the accounting records for the daily proceeds.
What are some skills and experiences that will help you build a successful parking lot business?
Success in this business comes from identifying the opportunities that are profitable. The ability to analyze each situation to determine potential parking demand and calculate the revenues versus the expenses is the key factor in becoming a success.
What is the growth potential for a parking lot business?
Many investor/owners start with a single parking lot and then invest in other lots to grow the business. Parking lot opportunities include commercial office buildings, retail operations, shopping malls, mixed-use facilities, hotels, valet services, arenas, stadiums, events, medical centers, and hospitals.
One large parking lot management company called Ace Parking started in 1950 with a single parking lot. The company has steadily grown since then. Ace Parking now manages 450 parking lots across America and employs more than 4,500 people.
In the Unites States, Statistic reports that there are over US $10 billion in revenues earned each year from parking lot operations. IBISWorld reports that there are over 10,000 parking lot businesses in the USA that employ close to 160,000 people. The top three companies in this industry control a large share of the total market, earning 37.6% of the total industry revenues each year. Small operators make up the remaining 62.4% of the industry and mostly cater to the local market demand for parking.
Besides Ace Parking, the other largest operators include ABM Industries Inc. and Central Parking Corp., which merged with Standard Parking Corp. during 2012.
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a parking lot business?
It is a good idea to work as a parking lot attendant for at least a short period to understand how this business works. This business is not complicated and virtually anyone can do it, as long as they have, or can raise, the capital necessary to get started.
How and when to build a team
This business operates with very few employees per lot. When the business grows, by acquiring more parking lots, it is time to add more parking lot attendants for each new lot added to the business. It is very easy to find minimum wage workers to be parking lot attendants because the job skills necessary are minimal.